Despite perceptions to the contrary, we see many suburban tenants continuing to expand and seek new amenity-rich properties within the Chicago suburban footprint. Recently, telecom giant Verizon moved from its 125,000 square foot location in Elgin to a new 160,000 square foot space in Rolling Meadows. We found that companies can save more than $15.00 per square foot on average (Q2 2016) for Class A space in Chicago’s suburbs compared to the CBD. A broader tenant shift towards Class A space has brought opportunities within the existing Class B suburban market, especially in the Northwest submarket. As of Q2 2016, the Class B vacancy rate in Northwest now exceeds 35 percent.

1. Class A direct rental rates
Source: JLL Research
Suburban large blocks
Source: JLL Research
Q2 2016 confirmed sales activity by building class
Source: JLL Research *50,000 s.f. and higher
Rents and vacancy hold steady but Class A properties increase in demand
Consistent tenant demand for Class A space has supply in this product type
dwindling. While much attention has been paid to corporate urban migration, in
fact, suburban tenants continue to expand aggressively and seek properties that
have upgraded amenities and locations with improved access. Representative of
this trend, Verizon relocated from 125,000 square feet in 777 Big Timber Road in
Elgin, to 160,000 square feet at 1701 Golf Road in Rolling Meadows. Similarly,
MECU will upgrade their space and location with their upcoming move to 1501 E
Woodfield Road.
Class B properties struggle to remain relevant
While suburban tenants continue to trade up, Class B buildings have seen the
greatest decline in tenant demand. This theme is most evident in the Northwest
submarket where the Class B vacancy rate exceeds 35 percent. However, while
existing properties struggle to attract tenants, new build-to-suit projects appear to
be increasing in popularity. The Opus Group recently began construction on a
175,000-square-foot headquarters for MC Machinery Systems, Inc. in Elk Grove
Village. Similarly, two other projects along the I-90 corridor are also underway.
These projects demonstrate that the suburbs remain attractive to many
companies, but the existing inventory may not be able to sufficiently meet the
needs of modern tenants. A few significant large block of space returned to the
market including: 300 Field Drive, 1200 Townline, and 3100 Sanders Road.
Asset values remain challenged across suburban markets
Equus Group is reportedly set to purchase Mid America Plaza in Oak Brook for
approximately $80 million, which is almost 19 percent below the prior sale price
in 2007. As the largest suburban office sale this year, it proves that the local
capital markets remain challenged. Going forward, some owners and investors
may be wise to consider alternate uses for some of the large and obsolete
properties that can be found across the region. Demand for senior housing,
daycare facilities, and community centers may outpace demand for office space
in certain submarkets.
Tenants expanding and moving up to Class A offices
2,257
Office Insight
Chicago Suburbs | Q2 2016
96,821,120
Total inventory (s.f.)
-5,758
Q2 2016 net absorption (s.f.)
$23.52
Direct average asking rent
1,111,000
Total under construction (s.f.)
18.7%
Total vacancy
348,161
YTD net absorption (s.f.)
-1.6%
12-month rent growth
100%
Total preleased
$15.24
PSF rent savings on a Class A
suburban space vs CBD
27
15
9
16
13
4
0
10
20
30
40
50,000 - 100,000 s.f. 100,000 - 200,000 s.f. > 200,000 s.f.
#ofblocks
Class A Class B
$18,000,000
$63,783,333
$81,783,333
$0
$50,000,000
$100,000,000
A B Grand Total

2. Current conditions – submarket Historical leasing activity (s.f.)
Source: JLL Research Source: JLL Research
Total net absorption (s.f.)
Source: JLL Research
Total vacancy rate (%)
Source: JLL Research
Direct average asking rent ($ p.s.f.)
Source: JLL Research
-242,577
-1,018,749
-2,165,869
-283,123
394,775
-107,998
153,085
1,643,439
1,277,749
348,161
-3,000,000
-2,000,000
-1,000,000
0
1,000,000
2,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD 2016
$23.74
$24.10
$23.49
$23.08 $23.08 $23.12
$22.91
$23.60
$23.43 $23.52
$22.00
$22.50
$23.00
$23.50
$24.00
$24.50
2007 2008 2009 2010 2011 2012 2013 2014 2015 Q2 2016
20.7%
22.8%
24.8% 25.0% 24.5% 24.6% 24.3%
22.6%
18.5% 18.7%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 Q2 2016
6,708,869
4,507,842
5,703,551 5,744,248
2,428,744
0
2,000,000
4,000,000
6,000,000
8,000,000
2012 2013 2014 2015 YTD 2016
©2016 Jones Lang LaSalle IP, Inc. All rights reserved.For more information, contact: David Barnett | David.Barnett@am.jll.com
Landlordleverage
Tenantleverage
Peaking
market
Falling
market
Bottoming
market
Rising
market
North Lake
O’Hare
Western East-West,
Northwest
North Cook,
Eastern East-West